Stamp Duty: The Essentials
If you are looking at buying a property or are already in the process of buying, it is vital that you understand what stamp duty is and how much it will set you back before making your final decision to buy. This guide will equip you with all the information you need to work out which stamp duty rates are relevant to you and your situation.
What is Stamp Duty?
Stamp duty got its name in the 17th century when all legal documentation was taxed and stamped to show that all fees had been paid. Today, it is payable in England, Wales and Northern Ireland on property or land transactions over the value of ￡125,000 for first home and on property over the value of ￡40,000 for second homes. In Scotland, instead of stamp duty, you will pay a Land and Buildings Transaction Tax (LBTT) which is payable on properties over ￡145,000.
Who pays Stamp Duty?
Stamp duty (or LBTT) applies to almost everyone. It is due on leasehold, freehold and shared ownership properties (you can learn more about property tenure here) and it is also a consideration whether you are buying a property with or without a mortgage. It is paid by first time buyers as well as those already in the housing market.
The most common exception is that if you inherit a home, you will instead pay inheritance tax. There are also a few other exemptions including a divorce or separation where 1 party transfers their share of the property to the other and when the property is a gift.
For further information about exemptions you can visit GOV.UK.
Changes to the Stamp Duty System
The stamp duty system was reformed in December 2014. Instead of paying a single rate on the whole property price (known as a slab tax), you’ll now pay the rate for the portion of the property that is in each band. This has resulted in the tax due dropping for the average property in the UK which is great news for many aspiring buyers.
Another major change implemented in 2016 was the introduction of a surcharge on top of the new stamp duty rates for the purchase of second properties. This was implemented by the government to try to slow down house price growth and give first time buyers a chance to get into the property market. How much extra you will need to pay for the purchase of a second property is detailed further in the next sections.
Stamp duty in Wales might be subject to a change in April 2018 with the Welsh government looking to establish a land transaction tax. Announcements with specific details of the changes are unlikely to be announced before Autumn 2017.
How much Stamp Duty will you pay?
Here is a basic explanation of the current tier system introduced in 2014. For residential properties in England, Wales and Northern Ireland, you won’t pay stamp duty on the first ￡125,000. For the next portion up to ￡250,000 you’ll pay 2% and then 5% on the portion up to ￡925,000.
From there up to ￡1,500,000 you’ll pay 10% and then 12% on any portion over ￡1,500,000. For Scotland, the tiers and percentages differ. It is quite complicated so use our stamp duty calculator to work out how much you will be liable to pay or see the easy to follow tables below if you want to try to work it out for yourself.
England, Wales and Northern Ireland
|Purchase Price||% to be paid|
|Up to ￡125,000||0%|
|￡125,001 to ￡250,000||2%|
|￡250,001 to ￡925,000||5%|
|￡925,001 to ￡1,500,000||10%|
|￡1,500,001 and over||12%|
|Purchase Price||% to be paid|
|Up to ￡145,000||0%|
|￡145,001 to ￡250,000||2%|
|￡250,001 to ￡325,000||5%|
|￡325,001 to ￡750,000||10%|
|￡750,001 and over||12%|
Additional Stamp Duty Rates for a Second Property
If you’re buying a second property for over £40,000, you’ll usually have to pay 3% in addition to the normal stamp duty rates. Whether you’re buying a second property as a holiday home, purchasing it for a child or as a buy to let, the 3% surcharge will apply. It even applies if your main home owned is overseas.
It will not apply however, if you already have a buy to let property and are selling your main residence to buy a new main residence to live in. It also excludes caravans, mobile homes and houseboats. You can learn more about buying to let in our comprehensive buy to let guide.
When and How do you pay Stamp Duty?
You’ll need to pay and submit a Stamp Duty Land Tax return within 30 days of completing the purchase of your property. However, the Government plans to reduce this to 14 days from April 2018. It is legally the buyer’s responsibility to pay it correctly and on time but usually your solicitor will help or manage the process for you.
You can find out more about how your solicitor will help you throughout the transaction in Propillo’s guide to conveyancing. Failing to meet the deadline could incur a fine or an interest charge. Go to the GOV.UK website for an application form and for further information about the submission process should you need to investigate this further without your solicitor’s help.
You will still be required to submit a return even for properties less than £125,000, even though you won’t be liable to pay any stamp duty.
Buying a property is a big purchase and it is vital that you factor in the cost of stamp duty at the start of your decision making process. Budgeting is paramount so be sure you calculate the cost accurately using the correct stamp duty rates for your buying situation and your location (don’t forget to use our calculator!) Before you put an offer in on a property, ensure you are able to finance the stamp duty and have an understanding of the other property and mortgage fees that will be due.
We are often asked if stamp duty can be added to the mortgage. Technically this is not possible, however, depending on your personal circumstances you may be able to request a larger mortgage to compensate for any buying costs you may have.
You need to be aware of the additional interest cost that will be accrued and also how it will affect your loan to value ratio as in some cases, borrowing that little extra could be very expensive overall. Discuss options with our mortgage advisers before making any decisions.